Leia Company purchased a machine for $4,660,000 on January 1, 2014. Leia estimat

Question

Leia Company purchased a machine for $4,660,000 on January 1, 2014. Leia estimates the machine will have an eight-year useful life, salvage value of $60,000, production capability of 192,000 units of a product called Hoosier, and 16,000 working hours. During 2014, Leia used the machine for 2,400 hours and the machine produced 29,000 units. Compute Leia’s depreciation for 2014 assuming she uses the following depreciation methods:

a. Straight-line

b. Units-of-production

c. Working hours

d. Sum-of-the-years’ digits

e. Double-declining balance

Explanation / Answer

Answer:-Depreciation for 2014:-

A)- Straight line Method = Cost of asset- Salvage value of asset/No. of useful life (years)

                                        =$4660000-$60000/8 = $575000

B)- Units of Production=No.of units produced/Life in no.of units*(Cost – Salvage value)

                                      = 29000/192000*($4660000-$60000)

                                      = .15*$4600000 = $690000

C)- Working Hours =Machine hours used/Total working hours*(Cost – Salvage value)

                                = 2400/16000*($4660000-$60000)

                                =.15*$4600000 = $690000

D)- Sum of the years digits=Depreciable base*Remaining useful life/sum of the years digits

                =$4600000*8/36 = $1022222

Sum of the Years' Digits = 1+2+3+4+5+6+7+8 = 8(8 + 1) ÷ 2 = 36

Depreciable Base = $4660000 $60000 = $4600000

E) - Declining balance depreciation is calculated using the following formula:

Depreciation = Depreciation Rate * Book Value of Asset

Depreciation rate is given by the following formula:

Depreciation Rate = Accelerator *Straight Line Rate

Straight-line Depreciation Rate = 1/8 = 0.125 = 12.5%
Declining Balance Rate = 2*12.5% = 25%
Depreciation = 25%*$4660000= $1165000

Depreciation = Depreciation Rate * Book Value of Asset

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